Building your dream home, then you’ll need a construction loan

Brand new home built with a construction loan

Construction loans – build your dream home with confidence

Building a home is exciting but financing it requires a tailored approach. Construction loans are designed specifically for people building or renovating, offering flexibility and staged payments to suit your project.

What is a construction loan?

A construction loan is a short-term loan that funds the building process. Unlike a standard home loan, the lender releases funds in stages—called progress payments—as each phase of construction is completed. This helps you manage cash flow and ensures you only pay interest on the amount drawn down.

The 5 progress payment stages explained

Construction loans typically follow five key stages. Each stage triggers a payment to your builder:

The 5 stages are

1. Slab stage

    • Covers laying the foundation and concrete slab.
    • Usually 15–20% of the total contract price.
    • Ensures the base of your home is structurally sound.

2. Frame stage

    • Includes erecting the frame, roof trusses, and basic structure.
    • Around 15–20% of the contract price.
    • This stage gives your home its shape.

3. Lock-up stage

    • External walls, windows, and doors are installed.
    • Typically, 20–25% of the contract price.
    • Your home is now secure from the elements.
Construction finance
Newly built home, assisted with a construction loan

The last 2 stages

4. Fit out (or fixing) stage

    • Internal work begins plastering, cabinetry, plumbing, and electrical.
    • Usually 20–30% of the contract price.
    • Your home starts to look complete inside.

5. Completion stage

    • Final touches, painting, flooring, and compliance checks.
    • Remaining balance (often 10%).
    • After this stage, your loan converts to a standard mortgage.

In order for the lender to release the final payment to the builder it will require a copy of the occupancy permit, certificate of currency noting it as an interested party and a physical site inspection by one of its panel valuers confirming the property is complete and compliant.

Key features of construction loans

  • Interest-Only During Construction: You pay interest only on the amount used until the build is complete.
  • Conversion to Standard Home Loan: Once construction finishes, the loan typically converts to a regular mortgage.
  • Flexibility: Payments align with your builder’s schedule, reducing financial stress.

Why choose a construction loan?

Building takes time, however the outcome can make it worth it's while

Construction loans are complex; however they do offer built in security

  • Ideal for new builds, major renovations, or knockdown-rebuild projects.
  • Helps you avoid paying interest on the full loan amount upfront. Interest is only calculated on the drawn funds.
  • A stand construction loan only requires interest only payments instead of P&I repayments, hence reducing the monthly repayment amount.
  • By only paying interest on the drawn funds makes life less stressful if you are paying rent at the same time you are building.
  • Provides peace of mind with structured payments aligned to your builder’s schedule.
  • A construction loan offers added security because lenders only release funds after each stage is completed. Before approving a progress payment, most lenders require a site inspection by their panel valuer to confirm the work meets the agreed specifications.

How we can help

At Vanquish Finance Group, we guide you through every step—from selecting the right lender to managing progress payments. With access to over 60 lenders, we’ll find a construction loan that suits your budget and timeline.

Ready to build?

Talk to a trusted Thornbury mortgage broker today and make your dream home a reality.

Construction loans – frequently asked questions

A: A construction loan is a short-term loan designed to fund the building process. Unlike a standard mortgage, funds are released in stages as construction progresses.

A: Progress payments are made at five key stages:

  • Slab Stage: Foundation and concrete slab laid.
  • Frame Stage: Structural frame and roof trusses installed.
  • Lock-Up Stage: External walls, windows, and doors fitted.
  • Fit-Out Stage: Internal work such as plastering, plumbing, and electrical.
  • Completion Stage: Final touches and compliance checks.

A: No. You only pay interest on the funds drawn down at each stage, which helps reduce costs during the build.

A: Yes, most lenders allow additional repayments, which can reduce your interest costs. Some loans also offer redraw facilities.

A: Once your home is finished, the construction loan usually converts to a standard home loan with principal and interest repayments.

A: Yes, most lenders require a fixed-price contract to approve a construction loan. This ensures cost certainty and reduces risk.

A: We’ll guide you through the process, from choosing the right lender to managing progress payments. Contact Vanquish Finance Group for expert advice.

A: In general, the first home owner grant is released with the second stage payment, the slab. However, some clients need the grant to be released at settlement of the land. If this is you, there are lenders who will release the payment of the grant at settlement of the land providing you already a fixed price building contract.

For more information on first home owner grants.

A: There are numerous tasks that need to be completed before you can collect the keys to your new home.

Firstly, the lenders require one of its panel valuers to inspect the site and prepare a completion report for the lender.

Secondly, the builder must issue you with you with the Occupancy Permit.

Thirdly, you must now must insure the building, noting the registered lender on the insurance policy as the first mortgagee or interested party.

Once all these tasks have been met and provided to the lender only then will they release the final progress payment to the builder.

With us on your team, you can shop, dream and build with confidence knowing your finances are sorted!

Get a pre-approval today and move forward with confidence.